I am interested in this big, yawning gap seen on the chart. This morning the stock generated very high interest (highest volume day YTD). But there was resistance from the Fib level, from the 200-day SMA, and from the prior high to overcome, and ultimately the stock failed to close above the Oct 17, 2023 high. Still, on an overall flat-to-down day the stock advanced by 2%+.
I think some support came from the earnings release by CPNG, which is a comparable stock, also operating in East Asia. I own shares in both names, as I believe there can be multiple winners in the region. I like CPNG for its better margins, and SE for its better geographic diversification and the strong demographic growth in its retail foorprint. BABA is another name to consider and definitely the value leader, but China holds extraordinary political risks, especially for Western investors.
From a fundamental side, I think SE is a show-me stock. Times have changed, and I don't think that notoriously unprofitable companies will be able to sustain high valuations. So, in the coming earnings report I will need to see SE continue to profitably grow their digital finance business (sea money), while stabilizing revenue *and* EBITDA in online entertainment (Garena). And I want to see margins improve in e-commerce (Shopee).
If the earnings report confirms my optimism, I will continue to build my (currently half-size) position on whatever pullbacks present themselves. Otherwise, I might sell and jump ship to BABA.
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I just realize that instead that my last update wasn't posted in this thread, but below, as a comment. My apologies for that mistake.
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The quarterly financials are out, and the market seems to be happy. With just a few minutes to go before the close SE is up almost 7% on the day. Wedbush is out first among the analysts, raising their price target for SE from $45 to $72.
My view is more mixed. In my original post I set out three aspects I'd want to see confirmed in the earnings release. Here's how the results stack up against them: 1. I said I'd need to see the finance business continue to grow profitably. That happened. Revenue grew from 446MM to 472MM sequentially and EBITDA for financial services, while down on the quarter was still solidly positive.
2. My next focus was on the stabilization of revenue and EBITDA in online entertainment. Again, the results here are...not great, but encouraging. Revenue in digital entertainment dropped from 592MM to 510MM sequentially. And EBITDA is also down, from 234MM to 217MM. But quarterly bookings are up and monthly active users are up year-on-year (which they weren't last Q).
3. I was hoping for margins in e-commerce to improve. This did definitely not happen. E-commerce revenue continnues to rise briskly, but it does so with a negative contribution margin, and sales & marketing expense, which is basically the cost of attracting buyers and sellers to Shopee's platform, continued to grow at a rate of more than 100% year-on-year.
The lack of profitability at Shopee is becoming concerning for me. During today's conference call analysts questioned management on this issue. Management reiterated their belief that long-term profitability is best served by growing market share now, but I take a dim view of that. Market share wars are extremely destructive to profitability. And especially so, if they are waged against powerful and well-financed competitors. Shopee is no longer just competing against long-established local e-commerce providers, but also aginst new arrivals TikTok and Temu (owned by PDD). Management is talking up early successes with live video streaming for their marketplace sellers. I wonder whether sellers who rely on video promotions aren't better served by TikTok, which can offer them a much larger audience.
To sum up, I will not be looking to increase my exposure to SE. Instead, I will look to close my position, as soon as the current strength starts to dissipate.
hi, how long will you hold your position in this asset?
matthias
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Hi, @Nicolai1B, This trade is done. I mistakenly used the "Comment" title, instead of "Trade Closed: target reached". Thanks for drawing my attention to it.
Nicolai1B
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@matthias my average price is $65 per share, do you think it’s worth holding or is it better to re-enter during the decline? Thank you
matthias
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@Nicolai1B, I have no idea where SE goes next. The pattern I flagged in this idea is complete, and I don't think I have any further edge. Also, I cannot legally give you any advice, so I won't. It really depends on your personal situation. But I'll make two very general comments, which may help: 1. For me, as a US resident, it's not a good idea to let short-term losses turn into long-term ones. So, I try to take losses before my holding period exceeds 1 year, unless I have *a lot* of conviction about a particular stock. This is because of US tax law and doesn't apply everywhere. 2. If a stock is trending up, instead of selling it, I sometimes put a percentage trailing stop on it. That gives me the potential to participate in remaining upside, while making sure that I don't incur too much downside.
Good luck!
matthias
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Looks like SE is taking off instantly. Since I am not fully invested, I hope for a bit of a pullback around the earnings release. As long as the company shows progress with game subscriptions and the EBITDA margin for Shopeee continues to improve I will continue to buy on dips.